Ophir Energy plc (Ophir) is the UK incorporated holding company of a group of companies (the Group) with oil and gas exploration assets in a number of African locations. The Group's headquarters are located in London (England), with operational offices in Perth (Australia), Malabo (Equatorial Guinea) and Dar es Salaam/Mtwara (Tanzania).
Ophir’s bid for Dominion Petroleum latest sign of oil sector consolidation
Are we finally starting to see the first signs of consolidation in the oil exploration and production sector?
With two deals in two weeks it is difficult to say definitively whether we are on the cusp of something big.
However the tectonic plates certainly feel like they are shifting.
Today we saw Ophir Energy (LON:ORHR) making its move with a £118 million, mainly paper bid for Dominion Petroleum (LON:DPL).
It follows Premier Oil’s (LON:PMO) tilt for its joint venture partner EnCore Oil (LON:EO.) last week.
There is also a trend of consolidation at project level too with larger firms acquiring significant stakes in prospective acreage where the juniors have laid the groundwork.
Notable farm-ins deals of this nature include BP’s (LON:BP.) partnership with Chariot Oil & Gas (LON:CHAR) in Namibia and French major Total’s tie-up with and Cove Energy (LON:COV) in Kenya.
Indeed Dominion last week was part of this merry-go-round of deals when it sold a 20 per cent stake in its lead asset, the Tanzania Block 7 licence, to an Abu Dhabi oil firm for US$20 million.
In part, this theme has emerged as a reaction to the knock-down asset valuations implied by the current stock prices.
Indeed the Dominion deal reveals that industry players place a far higher price on these assets than investors currently do.
Ophir’s offer represents a whacking 64 per cent premium to last night’s closing price.
But it seems it is a price worth paying for a significant position off the coast of East Africa, a real industry hot-spots at the moment.
Oriel Securities analyst Nick Copeman said: “The acquisition will make Ophir one of the largest holders of exploration acreage in East Africa and will add highly prospective offshore acreage in Tanzania and Kenya to the existing portfolio.
“In addition Ophir will acquire on-shore acreage in Uganda and the DRC.
Repeating a ‘buy’ recommendation, he added: “Overall this looks like a good transaction that will materially add to Ophir’s exploration position in an area that is attracting substantial industry interest.”
Looking at what the takeover means for Dominion shareholders Westhouse Securities’ Andrew Matharu said: “The deal diversifies Dominion’s shareholders’ exposure to exploration and puts them into a better-funded vehicle.”
Investors will receive 0.02244 Ophir shares for every Dominion share they currently own, while convertible note holders will receive £21 million (US$32.8 million).
“The exposure to Ophir's existing discoveries in Tanzania would de-risk the combined portfolio while maintaining significant upside exposure for both companies' shareholders,” Dominion chairman Roger Cagle said in a statement today.
“The board of Dominion therefore believes that the offer provides greater certainty of value to our shareholders than remaining independent against the background of challenging market conditions, the funding needs faced by Dominion and the inherent risks associated with frontier oil and gas exploration."
Meanwhile Ophir chief executive Nick Cooper stressed that the deal is about building a credible position in the waters off East Africa, which is experiencing an “upsurge of industry attention”.
"Ophir has been at the forefront of exploration efforts in deepwater Tanzania and has developed a detailed technical understanding of this emerging East Africa offshore play,” Cooper said. “The addition of Dominion's assets to our portfolio positions Ophir as the largest independent net deepwater acreage holder in East Africa with a portfolio of seven offshore blocks at high equity levels in highly prospective acreage offshore Tanzania and Kenya.
“There are significant potential geological, operational and commercial synergies in bringing these portfolios together and we are confident that the combined group will maximise value for shareholders from the exciting position we will command.
“East Africa is experiencing an upsurge in industry attention, partly as a result of Ophir's previous deepwater discoveries, with the involvement of many large oil and gas companies who are scheduled to drill high-impact exploration wells adjacent to the Ophir interests in the near-term.
“Ophir is strongly funded to deliver a sustained drilling programme across its East African portfolio and will seek to accelerate its exploration activities across the region to include the newly acquired blocks."
